Chintan Zalani
Law Firm Billing 101: A Simple Guide
What is Legal Billing?
Legal billing is the process of tracking all billable time spent on a client’s legal matter. It makes sure you get paid fairly and promptly for your legal services—keeping your legal business afloat and thriving.
How Does the Law Firm Billing Process Usually Work?
In practice, here’s how the typical law firm billing process looks like:
- Client intake — The law firm brings in a new client (if applicable, integrates the new case into their legal practice management software).
- Timekeeping — Usually with a time tracking tool, the firm tracks all billable time and out-of-pocket expenses invested into the client’s matter.
- Bill drafting — The firm drafts a bill that adds up all billable hours and itemizes disbursements for the case (e.g., travel expenses and court filing fees).
- Bill approval — Attorneys review the bill, add their notes, and approve a final version for sending.
- Payment processing — Upon the bill’s receipt, the client is expected to pay through an accepted channel and within the timeframe specified.
- Follow-ups — In case of late payments, the firm can initiate follow-up protocols like sending formal debt collection letters.
Common Challenges in Legal Billing
From the outset, legal billing seems to be a simple, straightforward affair.
But, in the legal industry, nothing is ever simple.
Here are some of the known challenges that law firms face when it comes to billing:
- Time tracking itself can be time-consuming — For law firms that still rely on manual time tracking, tracking billable hours itself consumes precious time. This can negatively affect efficiency and focus, especially when factoring in additional tasks like recording disbursements.
- Late invoicing disrupts cash flow — Some law firms may find it difficult to stick to a regular billing procedure, leading to delays in sending invoices. This can lead to cash flow problems when left unchecked.
- Missing bill details can lead to disputes — Apart from timeliness, it’s also important to ensure your invoices are as clear and detailed as possible. Any ambiguity and you’re opening yourself up to disputes, leading to more delays.
- Failing to log billable hours or tasks — As a lawyer with a lot on your plate, it’s perfectly understandable for you to forget a few things that aren’t directly related to your legal expertise. This translates to lost revenue, which can quickly add up if you make it a habit.
- Late payments — Lastly, you can’t ignore the possibility that some of your clients won’t be able to settle their outstanding balances. This is—in most cases—due to unintended circumstances, such as the current lack of funds or simple oversight.
What Are Billable Vs. Non-Billable Hours
Now, before you can set up a streamlined legal billing system, it’s important to know exactly what counts as billable and non-billable hours.
In the legal practice, billable hours track all activities directly related and chargeable to the client’s legal matter. This includes client meetings (both in-person and virtual, legal research, legal document processes (drafting and review), court appearances, formal negotiations, and deposition attendance.
Non-billable hours, on the other hand, refer to time spent on essential office activities that don’t directly relate to the client’s matter. As such, they don’t add to that client’s total bill.
Some examples of non-billable tasks are:
- Drafting, reviewing, and sending invoices
- Internal meetings not involving the client
- Professional development (i.e., attending conferences or seminars)
- Business development and marketing (e.g., email outreach, social media marketing, and advertising)
- Unrelated administrative tasks
How Lawyers Set Billing Rates
First and foremost, a law firm’s billing rate is founded upon a handful of key factors:
- Practice area(s) — Different practice areas involve different stakes, which also lead to discrepancies in price.
- Market value — The standard price of similar legal services in your service location(s).
- Experience — The more experience you have and the higher your win rate, the more you can charge for your services.
- Firm size — Bigger firms with a proven history of success can charge more than smaller firms that are still collecting wins.
These factors set the base rate to be used when calculating billable time, which is usually done in six-minute increments—that’s per tenth of an hour.
For example, working 12 minutes for billable work is two-tenths (2/10) of an hour. If your base rate is $150 per hour, that increment is 150 x 0.2 or $30.
You can refer to this chart for calculating the total cost per time increment:
| Billable Rate Multiplier | Minutes |
|---|---|
| 0.1 | 1-6 minutes |
| 0.2 | 7-12 minutes |
| 0.3 | 13-18 minutes |
| 0.4 | 19-24 minutes |
| 0.5 | 25-30 minutes |
| 0.6 | 31-36 minutes |
| 0.7 | 37-42 minutes |
| 0.8 | 43-48 minutes |
| 0.9 | 49-54 minutes |
| 0.1 | 55-60 minutes |
This is the standard way of tracking billable time for most law firms. Not only does it protect the client from paying for full hours they didn’t need, it also enables you to charge for the extra minutes you put into their matter.
Alternative Billing Strategies You Can Use
Aside from tracking billable hours, here are other ways law firms can charge clients for legal services:
Unbundled Service Fees
Unbundled legal services, also referred to as “limited-scope representation,” are arrangements in which the law firm only renders a specific task.
The billing for unbundled services is typically agreed upon prior to doing the work. To simplify billing, some lawyers set flat fees for these services.
Some examples of unbundled legal services are as follows:
- Legal document processing (e.g., creating a will, reviewing a contract, and processing immigration paperwork)
- Paid case evaluations or consultations
- Limited litigation or mediation support
Subscription-Based Billing
Lawyers in certain legal practice areas can charge a monthly subscription fee for on-demand services.
Business or corporate law firms, for instance, can provide support and perform legal services for business clients who may come across different legal challenges over time. This includes business formation, contract drafting, mergers, and franchise agreements.
Sliding Scale Fees
As a law firm, you can adopt a sliding scale fee structure that has flexibility for clients with different financial situations.
Rather than paying the standard rate, this allows clients with lower household incomes to get fair representation. In turn, this will reflect positively on your law firm’s reputation—bolstering client relationships and expanding your referral marketing network.
Flat Fees
For law firms with a ton of experience on a particular case, they can implement a flat fee structure to keep billing simple and easy to understand for clients.
In fact, sharing flat fees right off the bat inspires confidence in your potential clients.
According to Cody Warner, principal attorney at Cody Warner, P.C., flat fees are perfect for cases you’re already highly familiar with:
I bill by the hour for complex cases that have uncertain time commitments. With cases for which I can estimate the time that I will spend on the case, I charge flat rates. Clients like the certainty of flat fees, and I find that I can actually charge more for my services with flat rates. When clients want payment plans with flat rates, I structure the payments so that I am paid in full by the time all my work is completed.
This can be highly profitable, especially if you leverage a lot of legal process automation to save time on relevant, cookie-cutter tasks. Just be extra careful since it’s easy to take on cases that seem easy, but are actually huge time and money sinks.
Evergreen Retainers
An evergreen retainer is a type of fee that’s paid in advance by a client in exchange for future legal services.
This has two main components: the initial, upfront fee and the minimum balance.
As you perform legal services, you deduct the costs from the initial fee until you hit the minimum balance agreed to by you and your client. When this balance or limit is reached, the client has to replenish the retainer in order to avail of additional services.
Offering Installments or Payment Plans
Data from LawPay revealed that 48% of law firms successfully collected more revenue by offering payment plans.
With payment plans, you’re not necessarily lowering your standard billing rate or adjusting to your client’s capacity to pay. Rather, you structure a billing arrangement in which clients make bi-weekly, monthly, or quarterly payments to settle their outstanding balance.
This is a win-win for both your firm and your client. While they get some breathing room to cover large legal fees, you get the option to charge interest on their final bill as long as you’re transparent about it.
Law Firm Billing Tips to Ensure Positive Cashflow
Now that you’re ready to create your law firm billing strategy, here are 7 real-world tips used by seasoned attorneys in various practice areas:
1. Aim to Stay Retainer Positive
If you’re planning to use evergreen retainers as a billing strategy, keep in mind that planning ahead and transparency go hand in hand.
Matthew Davis, owner of Davis Business Law, talks about his firm’s approach and results with evergreen retainers:
Our CFO just brought me our collections rate data for 2024, and she dialed in 97.2% collections on over $5 million in revenue. The trick to numbers like that is to stay retainer positive with your clients.
Our attorneys take lead calls and set retainers based on guidelines we developed. We make a point to explain that the initial payment may not cover all the costs because we cannot predict the future. Then, every week, the attorneys get a Case Review Spreadsheet where they report back to Case Finance what retainer replenishment they need going forward. We send out trust requests based on that, which gives our clients a chance to pay, say no or ask to discuss the case with their attorney.
2. Consider Contingency Fees
A contingency fee in the legal business is an arrangement in which you—as the attorney—gets paid a portion of the awarded amount if the case is won.
This means you assume the entire risk associated with the case. On the flip side, winning a case can lead to a huge payout, especially with contingency fee agreements of 20% to 50% of the proceeds.
To make contingency fees a reliable billing strategy for your law firm, it’s crucial to conduct in-depth, extensive research. It’s also important to weigh in potential setbacks that could impact your income—or lack thereof.
Kahana Feld managing partner, Joshua Offenhartz, explains this well:
Contingency fees, on the other hand, shift the financial risk entirely to the attorney, which can be both a blessing and a curse. While these arrangements can align interests with clients and allow access to justice for those who may not afford hourly rates, the attorney bears upfront costs and risks. New facts that decrease a case’s value or unexpected disputes over settlement amounts can significantly impact profitability. These challenges require careful evaluation of potential cases and the resources needed to litigate them effectively.
3. Switch Between Hourly and Flat Billing
While having a consistent approach to legal billing across all clients seems more streamlined, being more flexible with your accepted payment methods makes your services more viable to a wider audience.
A reliable strategy is to have multiple billing strategies based categories like case difficulty, market demand, and profitability.
To give you an idea, Schmidt & Clark partner, C.L. Mike Schmidth, shares their painless workflow for deciding which billing system to use:
When it comes to billing, simplicity and transparency are key. I use hourly billing for complex cases and flat fees for simpler ones. Flat fees are great for predictable work, while hourly rates are necessary for unpredictable cases.
Late payments can be an issue with hourly billing, so I ask for an upfront deposit (about 30%) and send monthly invoices. Flat fees are more predictable, but if extra work is needed, I adjust the fee accordingly.
4. Invest in Law Firm Billing Software
While it’s definitely possible for small law firms to use manual billing, it’s definitely not a sustainable strategy for larger firms that cater to several clients—or, if you use a combination of different billing strategies.
A more efficient approach is to invest in software solutions specifically designed for law firm billing, case management, or accounting.
Not only do visual law firm billing software streamline money management tasks, it also provides automated billing tools to increase your collection rate.
Ed Hones of Hones Law Employment Lawyers PLLC shares how his firm uses law billing software to address their complex billing needs:
Late payments and managing cash flow are common challenges in any firm. To address this, we’ve adopted robust billing software that sends automated invoices, offers secure payment portals, and allows clients to set up installment plans when necessary. Tools like Clio and LawPay have been game-changers, improving efficiency and reducing administrative headaches.
5. Automate Invoices
Invoice automation for law firms can help you get paid on time, simplify your year-end accounting, and stay focused on the important aspects of your legal work.
The good news is, you don’t need to pay a premium to take advantage of invoice automation.
Most online invoice management solutions allow you to set any invoice as “recurring,” which means it’ll automatically be sent to the same recipient within the specified interval. This works perfectly with retainers, flat fees, and subscription-based billing.
Divorce law firm owner, Julia Rueschemeyer, shares how most of her billing needs are covered by one invoicing tool:
I charge flat fees for divorces, and the only billing I do is an automated invoice sent through Square. Clients pay my full fee the day before our first meeting, and I never spend another second thinking about billing or whether I will get paid. Clients pay via Square, Venmo, or Zelle, so there is no handling of checks, and those platforms have easy end-of-year accounting systems.
Because I don’t have to worry about billing, I can do up to three divorces per week with a 10-hour/week assistant and a virtual assistant who answers phones.
6. Make Billing Transparency a Priority
The best way to ensure legal billing transparency is to maintain clear and regular communication.
You can use case management software or conduct regular check-ins to keep clients in the loop. Here’s Andy Gillin, managing partner at GJECL Accident Attorneys, explaining the value of transparency in legal billing:
Clear communication is crucial in maintaining understanding and trust regarding billing. Providing a detailed breakdown of hours and services reassures clients about the value of your work. This simple gesture can prevent misunderstandings, ensuring the client sees where their money goes. Consider setting regular check-ins to discuss the progress, especially in long cases. Keeping clients in the loop fosters a strong relationship and smooth billing experience.
An important element of transparency is protecting clients from hidden fees, which could single-handedly ruin client relationships and your chances of earning referral leads in the future. This relies on your law firm billing software, client communication strategies, and—in some cases—your fees structure.
Alex Freeburg, owner of Freeburg Law, shares how transparency and a straightforward billing strategy helped him avoid late payments:
I stick with a flat fee billing method. It’s simple and straightforward. When potential clients call, they get one price for my services and I don’t charge a trial fee.
It’s worked out great for both sides. I’ve had clients who were nervous about hidden fees or escalating costs with other attorneys. With a flat fee, they can focus on healing instead of worrying about bills piling up. Late payments are rare but if someone falls behind, I reach out personally to discuss it. Once I explain the importance of timely payments for keeping the case moving forward, my clients are prompt.
7. Implement Consistent Billing Cycles
Establishing consistent billing cycles will benefit both you and your clients.
From the client’s perspective, billing cycles make it possible for them to plan for legal fees. For lawyers, this means higher and more stable collection rates—ideal for maintaining a healthy cash flow for your firm.
According to Nate Baber, partner at InjuredCT, consistent billing cycles are a great way to build your client’s confidence and secure long-term business:
85% of our clients in the past year have said our billing is clear and straightforward which is definitely a testament to what it takes to provide clients full visibility on the work we are performing for them.
For this approach to be as efficient as possible, we have put in place a simple invoicing schedule, invoicing biweekly or monthly, depending on the case. This consistency has minimized delays in payment and has allowed clients to accurately budget their legal fees.
How to Automate Invoicing and Reporting to Improve Billing Productivity
Automation addresses a lot of challenges in legal billing. You can avoid costly human error, commit to consistent billing cycle, save time, and take advantage of advanced features.
It all starts by choosing the right legal billing software, like LawPay, Clio Manage, Practice Panther, and Rocket Matter.
Aside from automating recurring invoices, here are other automation ideas that can streamline your law firm billing:
- Using legal AI tools to generate bill drafts, follow-up emails, or debt collection letters
- Automate time tracking to ensure fair and accurate compensation for legal services
- Automatically generate regular financial reports and identify billing patterns or client collection rates over time
- Set up automated reminder emails for upcoming payment due dates
- Launch a support chatbot on your website that can automatically answer your client’s billing concerns
Final Thoughts
When running a law firm, implementing a successful legal billing strategy is more important than most people think.
Your billing strategy can make or break client relationships, directly affect your productivity, and ensure a healthier cash flow for your firm. Hopefully, the strategies above are more than enough to keep the financial side of your law firm running smoothly.
Want to save even more time while attracting more potential clients to your website?
Here’s an idea: Offload your law firm marketing responsibilities to us—a battle-tested law firm marketing agency with years of success and experience in the industry. Get started today by requesting a free marketing audit here.
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